Wells Fargo, Rhode Island Agency Charged With Fraud

The U.S. Securities and Exchange Commission has charged a Wells Fargo & Co unit, along with a Rhode Island agency with securities fraud in relation to a bond deal for the now-bankrupt video-game company 38 Studios, which was founded by former Boston Red Sox pitcher Curt Schilling in 2006.

The charge comes from a $75 million bond granted to the company in 2010 as part of a program to boost economic development in Rhode Island. The company defaulted on the loan and declared bankruptcy in 2012.

The state’s economic development agency, the Rhode Island Commerce Corp, is reviewing the SEC’s complaint, a spokeswoman said. The agency previously filed a lawsuit against Wells accusing it of not disclosing material information about the 38 Studios deal to its board and investors, the spokeswoman said. That lawsuit also names two former executives of the agency.

The Rhode Island Commerce Corp did not tell investors that 38 Studios faced a funding shortfall to produce a particular video game, the SEC said in its complaint.

The state agency loaned $50 million to 38 Studios, which needed another $25 million to produce the game. Unable to get the extra money, 38 Studios defaulted on the loan without producing the video game, the SEC said.

Wells and its lead banker in the offering, Peter Cannava, who is also charged in the case, misled investors by not telling them about a side deal with 38 Studios, the SEC said. Wells received nearly double the amount of compensation it had disclosed to investors in offering documents because of that deal, according to the SEC.

38 Studios owed more than $150 million by the time it declared bankruptcy.